[IMGCAP(1)][IMGCAP(2)]Accountants are known for being detail-oriented and analytical, as well as strict followers of rules and principles. While this skill set suits the daily functions of accounting, it doesn’t fit naturally with forward-thinking, risk-taking and strategic leadership behavior.
Managing partners need to position their firms for the future, as well as serve clients and oversee internal operations. They need to anticipate competitive pressures and business model changes, and when necessary act as entrepreneurs and strategic leaders who push for change. We examine how managing partners can sharpen their strategic edge and better prepare themselves and their firms to prosper in times of uncertainty.
Accounting firms face many changes, from industry consolidation and disruptive technologies, to a changing field of competition, new revenue models, fee negotiations, and continued innovation. To meet these challenges, accounting firms need to build a strong strategic leadership bench. Our recommendations below reflect two decades of experience developing strategic leaders at leading companies around the world, as well as research conducted at Wharton’s Mack Institute for Innovation Management, where Paul served as research director. Also, our firm Decision Strategies International has conducted targeted research with more than 20,000 professionals in 176 countries, which allowed us to identify the six skills that leaders need to truly think and act strategically. Our framework can help your executive team develop the vision and flexible strategies needed to spark innovation, ensure company growth, and deliver high performance in the eyes of your clients and stakeholders.
Anticipation is about looking out further and wider to be prepared for change ahead. Strategic leaders see around the corner by developing a broad view and deep curiosity about changes in the outside world. They do so, in part, by paying close attention to changes in client needs, regulatory behavior, competitors, and new technologies. Those who see these changes first have a decided advantage.
Scott Whetstone is a senior partner at the 415 Group in Canton, Ohio, and has deep tax and accounting experience with dental offices in that region. He noticed early that firms like Aspen Dental were gaining significant market penetration by rolling up and merging dental practices. Using benchmark data, he could compare his clients’ expense structures and offer advice on how to operate as efficiently as possible. For example, the supply costs of one client practice were outside of the benchmark by 4 percent. Upon review, cheaper suppliers were found and his client’s profit increased by $35,000 that year. By following the dental industry broadly, combined with detailed knowledge of cost and revenue drivers in dental firms, Whetstone is able to advise practices on how to gain more efficient size and better cost controls. This kind of expertise has been deeply valued by his clients. Since he covers other industry segments as well, he is able to cross-fertilize best practices across sectors when appropriate.
Karen Reyburn, owner and director of The Profitable Firm, observed, “The accounting industry has a historical tendency to look around at other accountants and wait to try new things until all the other accountants are doing it. If you want to truly stand out, watch the creatives, the technology industry, the artists, and follow them. Your competition will always be three years behind you.”
Detecting emerging trends that might impact clients down the road is what accounting leaders need to stay ahead of the curve. New Vision CPA Group, based in Arlington Heights, Ill., saw early that new technologies would change how clients define and perceive the accounting value they receive. Automation has long been around for tax return preparation but is now changing the audit process and client interaction more broadly. By focusing on new solutions like Software-as-a-Service, cloud computing, mobile technologies, social media and value billing, they created new value in the eyes of customers. Utilizing a SaaS component allowed New Vision clients to view and update important information instantly, resulting in greater satisfaction and a culture of self-service. A client can now directly input financial data that would have previously required employee intervention. This clears the way for value-added services. New Vision CEO and principal Jody Padar explained, “We’re helping our clients with their business, as opposed to giving them a deliverable such as a financial statement or a tax return. They don’t want that; they want us. They want our business expertise, they want our value.”
To become more future-focused, look well beyond your industry’s walls:
- Identify forces outside of accounting (such as new technologies) that could disrupt your practice or generate new opportunities. Start by mapping out past trends that were disruptive and learn.
- Develop insights about the future by exploring new trends, new business models and weak signals that foreshadow change, using scenario planning and wide external networks.
Conservative by nature, accountants find it difficult to challenge many traditional assumptions of their business, especially those that are deeply embedded. But at times, strategic leaders need to question the old ways of doing business and explore contrarian views, just as some law firms did when moving away from hourly billing. Accounting leaders should periodically challenge industry and firm assumptions to see if commonly accepted practices can be improved or changed.
Jason Blumer, owner of Blumer CPAs, is working to stimulate more innovative thinking in his firm. As the company’s chief innovation officer, he leads off-site strategic planning meetings devoted to brainstorming ways to better serve customers, streamline internal processes, and improve the organization’s overall effectiveness. He encourages his staff to take risks and experiment by disrupting commonly accepted practices, hoping to instill a creative culture along the way. He believes traditional business practices, like dress codes and hierarchies, are unnecessary and focuses his energy instead on identifying underserved niches and growing their business.
In general, partners should encourage their colleagues to periodically examine their deepest implicit assumptions about the business and then check if current realities still match their traditional mental models. Scenario planning is an especially powerful tool to challenge people’s deeper thinking frames and confront them with any outdated viewpoints or assumptions.
The business of accounting has traditionally been a well-structured handoff from a business owner to the accounting firm, which then works its magic in a black box and finally hands back a financial report and a bill to the client. Historically, the accountant’s primary role was to file returns and make sure the company is in compliance. Today’s accountant is also expected to be a business partner, which requires a different way of thinking about clients and the type of work they expect.
To challenge better, firm leaders should:
- Challenge their own as well as other members of the firm’s deeper assumptions about the business and the broader market place; ask penetrating questions that shed new light on old issues.
- Foster a culture that allows for constructive debate and candid dialogue between partners and associates to promote out-of-the-box ideas. This requires building trust.
Interpreting a wide array of disparate data is hard, especially if your sense-making process is geared to look mostly for evidence that confirms your prior beliefs. Strategic leaders, in contrast, need to consider all relevant data, including those that might disconfirm their own pet theories or cherished assumptions about the accounting industry at large. Successful leaders inculcate a mindset that always explores multiple hypotheses before arriving at important decisions. This can be done via devil’s advocates (make sure to rotate those roles) or creating a red team that periodically challenges the firm’s dominant logic (akin to a loyal opposition in politics).
Untapped opportunities are likely sitting right in front of you. The data needed to do your due diligence for an audit also can be viewed with another lens. For example, you can compare client information with benchmark data of similar companies in the same industry, thus turbo-charging due diligence and opening the potential to return information that will help the client run their company better. What if better analytics could provide your client with unique insights about how they stack up against rivals or what may be amiss internally?
Few players are in a better position to capitalize on firm data than audit firms that have aggregated this private data into proprietary industry benchmarks. Often the auditing firms specialize in a particular business segment, which naturally gives them access to detailed information across companies in that industry. Developing statistics from that data allows these firms to show their clients where they stand on key performance indicators. This way, data analytics become a client-retention strategy as well as a product-delivery tool. There is often lost opportunity in small or mid-level firms whose audit teams may just do the bare minimum so they can move onto the next urgent client project; seldom is there a built-in step or method to interpret data from a different angle leading to added value. Firms that build this step in can exploit this for new client acquisition. Eventually, the capabilities learned from this new step can lead to a sustainable competitive advantage.
To interpret data more effectively, accounting leaders should:
- Deploy multiple lenses to connect the dots, alone or with others, before jumping to final conclusions. Exploring multiple external scenarios can help you see new patterns.
- Look at the data from different angles to uncover new information that can help your clients improve their businesses.
The key to good decision-making is to explore multiple options flexibly, rather than making rigid binary choices narrowly framed as yes/no dilemmas. Strategic leaders know how to balance speed with rigor so they do not fall prey to gut instincts alone. They respect data and input from others without coming to a standstill waiting for an elusive consensus. Leaders not only face tough choices on day-to-day tasks, but also have to make strategic choices when confronted with disruptions to their traditional business model. For example, executives are often told about the importance of staying on the leading edge of technology, which may be difficult since new technologies are expensive and perhaps unproven. It pays to think about the business first and the technology second. For example, improving client relationships may require better client-facing technologies, such as cloud services. Better customer service and cost reduction may entail the use of mobile technologies and perhaps playing the social-media landscape in smart ways.
When facing new technologies, the best approach is to proceed in small steps, run pilot experiments to see what works and what does not, and control costs. But leaders must also fight the internal tendency to make unduly conservative choices and never try anything new since that is a sure path to oblivion. Highly conservative approaches may work in a static world where decisions can be made with sufficient time to collect and digest all the necessary information. But accounting firms face time pressure, complexity, ambiguity and sometimes chaos. When under pressure to meet targets, leaders should obtain accurate information, seek diverse viewpoints, use trusted advisors, consult third parties, and review risk-based decisions against ethical norms and a sound moral landscape.
The scrutiny on accounting ethics peaked after a wave of scandals in 2002, resulting in the Sarbanes-Oxley Act and the formation of the Public Company Auditing Oversight Board. The accounting industry learned hard lessons from the massive frauds perpetrated by Enron, WorldCom and Tyco. Whistleblowers like Cynthia Cooper of WorldCom fame helped a new generation of leaders muster the courage to flag flawed internal decisions. When auditors talk about internal control with clients, they start with the tone at the top, often citing Enron’s infamous culture of “get your numbers or else.” Likewise, accounting firms should assess their own internal tone and the underlying operating ethos, and take note whenever partner decisions venture into the danger zone, whether ethical (related to an engagement), or about technology that may affect the future of the firm.
When confronted with tough decisions:
- Explore multiple options to a complex problem before settling on one solution. Weigh the options based on clear criteria, including how clients or associates will react.
- Honestly assess risks, without wishful thinking, and carefully balance trade-offs between benefits and costs, including the risk of unintended consequences for your reputation.
Aligning the varying interests of stakeholders, such as clients and staff, requires understanding and respecting their viewpoints. Talented people in your firm need to have personal growth plans that align with their career interests. For younger talent, for example, try to emphasize their role in keeping the firm ahead of new technologies. Strategic leaders work on gaining buy-in from different people with divergent agendas in order to achieve a common goal. This requires open dialogue, as well as trust, in order to surface potential areas of misalignment.
The accounting firm wears many hats, from tax service to assurance and auditing. It can be difficult to nurture these various relationships without some level of conflict. For example, some audit clients may feel that they are paying an accounting firm to sniff out management flaws or mistakes. To get better alignment (and cooperation), you may need to remind the client why the audit is necessary and potentially useful to the client if used appropriately. A thorough audit may provide an early diagnosis of festering problems. Another audit benefit is that new investors will feel more comfortable taking a chance on an audited company.
It is especially key to align your most important resource: talent. Larger firms are often adept at moving talent up from the middle of the pack, but fall short of moving their best talent up the chain from associate to partner, which may be an eight-year climb. Consequently, their top talent often leaves. Aligning your firm’s strategy and culture with the career hopes and plans of younger employees remains an ongoing challenge for any firm whose primary assets are people.
While serving as CEO and global chairman of KPMG, John Veihmeyer came up with a novel way to align multiple stakeholders, using a “10,000 stories challenge.” He asked his employees to share tweet-sized stories of what they love about their jobs at KPMG — with the incentive of two extra vacation days if 10,000 such stories were shared by a certain date. The goal was quickly surpassed, with responses including tweets like “I help farms grow” and “I advance science.” This simple idea helps to align the employees with the firm and the firm with their clients all at the same time. A tangible takeaway from this initiative for KPMG itself was that the percentage of U.S.-based employees who rated the firm as a “great place to work” nearly doubled.
To better align your firm or team:
- Listen more than you talk and when asking questions of clients and stakeholders, make sure you understand and acknowledge differences.
- Map your key stakeholders in terms of their interests and power base, not just clients but also junior staff and external partners as well. Engage them as needed in order for them to buy in to your agenda.
Learn through experimentation, trying new things and drawing insights from the ideas that succeeded as well as from those that failed. Strategic leaders are entrepreneurial and curious by nature, and so they often view their mistakes as gifts. They believe that every setback or surprise is a learning opportunity, a portal of discovery showing where their beliefs were incomplete or mistaken. They seek to learn from their interactions with clients, affiliates and competitors. Managing partners who emphasize innovation must realize that mistakes are a necessary consequence of meaningful experimentation, or as Albert Einstein put it, “If you have never made a mistake, you have never tried anything new.”
For accounting firms, big learning opportunities hide in your clients’ unmet needs, and your challenge is to create services to meet those latent needs. Take as an example the hot topic of risk. Venture onto any Big Four Web page and you will find risk management somewhere on the first page as one of the main advisory services. This wasn’t always the case. The area of risk management has grown considerably in recent years in large part due to global interconnectivity. Auditors clearly have a leg up on this market, as assessing risk is part of the audit process. A valuable by-product of this due diligence is a deeper understanding of overall firm risk. This benefit has led many accounting firms to offer risk management services.
In hindsight, risk may seem obvious. However, there was a time when taking this path required bold leadership. New billing arrangements had to be created, clear deliverables had to be marketed, all for a service that was difficult to understand. Yet trying new things — some of which may fail — is precisely what strategic leaders are required to do. Risk comes in many forms; acting too slowly and being left behind may be just as bad as acting too quickly. Where is the next opportunity hiding? In order to find out, you must foster a culture of inquiry, critical debate and creative solution-seeking. To foster this kind of culture, accounting leaders should:
Encourage the sharing of stories about successes and failures to foster collective intelligence, including discovering silver linings whenever mistakes are made.
Reframe mistakes as a source of learning; innovations to the accounting business model are always possible, but they may require some calculated risk-taking.
Successful business heads realize that strategy and leadership are not separate activities and must be deeply interwoven to succeed in a world of uncertainty. We have described the six disciplines that, according to our research and surveys, underlie strategic excellence in a changing world. These six disciplines and practices can and should be applied by leading accounting firms.
When distilled to their essence, our six disciplines suggest that accounting leaders must become more outside-in focused in their strategies and learn how to think backward from the future when they formulate plans. Through scenario planning, market segmentation, core-competency analysis and exploring different strategic visions, a five-year strategy can be articulated. But to make it happen requires clear plans, milestones, reviews and feedback loops. For example, if you want to double your firm’s size in five years, you should also know where you want to be four years from now, or three years. Such future-focused thinking requires more than just mapping out a roadmap to success. It also requires great situational awareness about how the external environment is changing. Leaders must try to see potential threats and opportunities sooner than competitors and then quickly respond as conditions change.
As Charles Darwin aptly noted, “It is not the strongest of the species who survive, nor the most intelligent, but the ones most responsive to change.”
Paul J.H. Schoemaker, Ph.D., is founder and executive chair of Decision Strategies International, a consulting and training firm specializing in leadership development and strategy formulation. He served as research director of Wharton’s Mack Institute for Innovation Management, and is the co-author of Winning the Long Game: How Strategic Leaders Shape the Future. Mark Cecchini, Ph.D., is an associate professor and Cramer Fellow at the University of South Carolina; he researches and teaches at the intersections of accounting, information technology, and business strategy.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access